The common mistakes that can cause heartache

Either way, there are many ways to make the right and wrong decisions when choosing a builder. It doesn’t help if you have no knowledge of building to begin with!

By doing your homework and seeking out independent advice, you have a better chance at avoiding cost blowouts and getting a quality construction.

Get some advice

When choosing a builder, a good place to start is by asking any family and friends that have hired a builder to construct their home or renovate.

Chances are you probably would have heard the stories, whether the experience was amazing or a nightmare.

Be wary of going through friends of friends because they may not necessarily be builders you can put a lot of faith in.

The builder may feel like they’re “doing someone a favour” and, because of that, they may place a lower priority on the job and take longer to start work.

Should I listen to my architect’s recommendations?

Building designers and architects often work with the same trusted contractors who they know will do justice to their designs. Their recommendation is usually a great place to start.

Is the builder legit?

Licences and insurance

Whether you’re going through a home builder or you’re designing your own home or renovation works with help from an architect, it’s important that you choose a builder that is licenced, registered and insured.

You should be wary of builders that either refuse or don’t make it clear upfront that they are legally permitted to be involved in building and construction.

Some builders’ licences or registrations may have simply expired or some may have had their licences revoked but are still involved in the building industry.

Regulators are historically slow at catching these dodgy builders so you have to be one step ahead.

At a minimum, they should have Public Liability Insurance and Home Warranty Insurance, which is known as Domestic Building Insurance in Victoria.

You’ll be also able to find a list of builders that are licensed and insured from your state or territory’s relevant department of fair trading or consumer affairs.

Experience and skills

Really question whether they have the skills you need.

If they only have experience in renovations and extensions, they’re not the right choice for your home.

It’s also important to note that builders who have only built residential properties in the past may not necessarily have a good grasp of the complexities of extensions and renovations.

Portfolio and references

First of all, check out their previous jobs and, if possible, have a physical walk-through of a home they’ve built. Even consulting an engineer to walk through the property may be worth the cost if you’re serious about choosing the right builder.

Builders may be quick to offer you the contact details of a handful of selected clients but they may just offer a biased opinion.

It’s best to ask to speak with their most current clients, particularly those in the middle of the building stage.

You’ll likely get a more balanced opinion of the builder, specifically when it comes to communication and how efficient they are in the construction process.

How do I make sure I don’t get ripped off?

When you’re spending hundreds of thousands of dollars on building or extending a property, you’ll want to do your homework.

First of all, building plans can provide a good overview of the construction job but they don’t provide a complete breakdown.

Put together a ‘tender package’ with help from your architect or building designer. In it, you should clearly detail:

The scope of the work: This is typically an outline of the work required by the builder. Make it clear if you’ll be contracting to a third-party tradesman for parts of the construction or if you have the skills, where you’ll be doing the work yourself.

The building plan: This should include engineering documents and soil tests. The builder needs to know exactly what’s involved and what you actually want to see in the completed home. It will also help them to figure out the total costs of material and labour as well as the timeframe for completion.

The building schedule: The materials, fittings and fixtures you want for the house. Be as detailed as possible to avoid a cost blowout.

With a tender package, the builder knows exactly what the job entails and what you expect to see in the finished project.

When they come back to you with a quote, make sure it’s clearly itemised with the materials and labour involved in all stages of construction.

Once you have an itemised quote, you can then compare quotes with other licenced builders by going through the same tender process. In this way, you’re comparing apples with apples.

You’re likely to find massive price differences in the quotes you get but It may be that one builder is doing something extra that the other isn’t. If you’re in doubt, it’s good to check quotes with your architect.

Getting 3-5 different quotes is a good general rule but remember that you don’t want a builder to cut corners and sacrifice workmanship just so you can get a cheaper price.

Do you have any idea what they’re talking about?

It’s a fair question, especially if you’re not a handyman or tradesman.

Builders tend to use a lot of industry jargon and abbreviations that you may not understand so it’s important to clarify what they’re talking about or look it up yourself.

The last thing you want to do is say yes to something expensive that you didn’t ask for!

In particular, be wary of quotes that have a lot of so-called ‘provisional sums’ or ‘prime costs’ listed.

These quotes give you a ballpark figure of the materials, fittings and fixtures but they can be really deceptive.

Miscommunication is a major problem when dealing a builder which is the reason why a detailed tender package and a building contract is essential.

In particular, the following items or works may not be included in the completed construction so it’s important to clarify this early on before you sign the building contract:

Driveways.

Garage doors.

Fencing and landscaping.

Hot water and gas supply.

Light fittings.

The number and location of power points.

Window locks.

Flyscreens.

Roof insulation.

Do you know who you’re dealing with?

So you’ve done your due diligence on choosing a builder, they’ve given you a fair quote and you’re ready to proceed.

By this point, you’ve probably built a good rapport with them but keep in mind that they may not necessarily be the person constructing your home or extension.

The building company may have a number of different contractors on their books so you may want to make it a condition of the contract that you select the builder.

Don’t sign the building contract until you’re ready

It’s important to get legal advice whenever signing a building contract to ensure that the contract is in your best interests. In particular, speak to a solicitor with building contract expertise.

Any small changes to the contract can actually cause you major headaches when it comes to getting approved for a construction loan and drawing down your progress payments for the build.

Consider the following:

What warranties can they offer you?

Do they offer termite prevention? It may cost you in the short-term but it’ll likely save you thousands over the long-term

The contract should include the fully itemised list of quotes that you agreed upon initially.

Make it clear that you should be made aware of any changes to the building schedule that may need to be made during construction. It may be that certain materials will need to be substituted in order to stay within your budget. If you haven’t made this clear, the builder may use fixtures and fittings that will cost you more than you can afford.

It should include the construction start date, key construction stages (where you’ll need to make progress payments on your construction loan) and the completion date.

Hi there, I’ve already selected a good builder and all I need now is the finance to get on with building. I looked around a bit and found that I could only borrow 80% on a construction loan. Isn’t there any way to borrow more than that?

If you already own the land on which you’re building, you may be able to use the equity on it to borrow up to 95% of the construction costs. Also, if you have a guarantor who can help you with your mortgage, you may be able to borrow even 100%. However, note that this can get complicated easily resulting in delays and errors with most lenders.

What if I just want a cost plus contruction loan and a builder up to a certain stage of building and then complete the rest myself as I’m a certified builder. The construction is 2 duplex for approximately $1.5 mils each. I know I can service the loan…

Hi Perez,
We recommend that you go commercial as for larger owner builder deals, they can be processed as a development loan. You can consider 80% LVR on costs (land plus construction plus things you’re paying yourself) and 70% on GRV (final valuation). A strong income will definitely help with a good deal.

Costas

I recently acquired my Australian PR and I was researching construction loans and I found this page to be very informative. It is probably a bit too complicated for me right now and I may just buy a house instead. Do you have a page that discusses on the different real estate jargon used here in Australia?